Shake Shack makes the move to automation in the face of higher wages

John Sexton covered part of this story earlier this month, but there have been a couple of updates. Shake Shack has been one of those admirable success stories in the American casual dining scene. Their founder, Danny Meyer, started with a food truck in New York City in 2004 and in less than fifteen years grew his business into a franchise covering a large part of the country with more than 130 outlets. He’s also had a reputation of being something of a “people first” kind of owner, referring both to his customers and his employees.

But the times continue to change and Shake Shack has to deal with the same realities as everyone else. One of those is the spiraling trend of state and municipal governments to jack up the minimum wage. With that trend hitting the New York City area like a jackhammer, Danny has made the same move as many other businesses in that market. He’s replacing human beings with automated kiosks which will take your order. (Bloomberg)

Beloved burger chain Shake Shack recently announced plans to use automated kiosks in lieu of employees to take orders at its new Astor Place location. The news rather awkwardly coincided with the announcement that founder Danny Meyer has raised $200 million in private equity to invest in companies with a strong focus on employees and communities.

“Automation at Shake Shack has nothing to do with the fund,” said Meyer during a phone call with Bloomberg News. “As soon as Shake Shack became public [in 2015], it stopped having anything to do with Union Square Hospitality Group.”

It’s a critical time for the burger chain. The stock has dipped recently due to the overcrowded market for upscale burgers, and a new $15 minimum wage for businesses with 11 or more employees will go into effect by the end of December 2018 in New York, drastically altering the economics of the fast-food industry.

Bloomberg seems to take Meyer to task a bit, contrasting his reputation for a focus on employees with this decision, but it’s hard to fault him. New York City is a monstrously expensive place to do business across the board (not to mention an expensive place to buy a burger to begin with) and these rapid fire minimum wage hikes are only making it more difficult. Plus, he’s in a business which faces incredible competition, meaning he needs to save money wherever possible just to stay in the game.

Put all of that together, and automation was simply an obvious choice. Meyer is quoted as saying, “Our labor costs are skyrocketing.” That money has to come from somewhere. If he passes the higher prices on to his customers, they’ll either find someplace cheaper to eat or start dining at home more often. Either way, Shake Shake takes a cut in their revenue which they simply can’t afford.

But if any of his competitors try to exploit this news by calling him out they’ll want to tread carefully. The Fight for Fifteen is affecting all employers in the city equally. (Except those with less than a dozen workers.) They may be laughing now but they’ll probably be joining in the kiosk revolution before long if they want to stay in business.